Libya conflict causing growing uncertainty in oil markets of the West

By Laura Brown - 24 Mar 2011 13:2:0 GMT
How the Libyan crisis is causing fear in the oil markets

The violence in Libya and the role of the UN is causing debate about the involvement of the West in disputes in the Middle East. A long conflict and ongoing dispute, while continuing to raise the spectre of Iraq in the consciousness of British and US voters, also raises fears about the impact ever-increasing oil and gas prices.

Despite a guarantee in George Osborne's UK Budget on 23 March to reduce fuel duty, concerns remain that the cost will inevitably rise of production is affected, leading to a reduction in availability, rising costs and the continued impact on businesses and an economic recovery in the west.

Libya is the 18th largest producer of oil in the world. The Financial Times warned, as the UK Chancellor stood to deliver his budget, that half of the country's oil production has been halted because of the violence. In response to that news, prices increased to over $100 a barrel. Fears abound that the turmoil could spread to Syria and Saudi Arabia, other major oil producers

A reduction in availability hits Europe to a greater extent than the US. 85% of Libya's crude to Europe, 5% to America.

As European leaders gather for a summit in Brussels the German Chancellor Angela Merkel called for a boycott of Libyan oil in an attempt to stop money flowing to the coffers of Muammar Qaddafi. Yet demand for oil and gas continues to increase in the West, the Environment Agency in the US estimates demand has increased by 1%.

Analysts predict that as uncertainty continues in Libya and the wider Middle East, prices will continue to be unstable and will rise. Oil market, they argue, are notorious for their fear of unsettled political climates. Saudi Arabia is expected to make up the shortfall if Libyan exports are fundamentally disrupted, yet ongoing conflict in neighbouring Bahrain fuels concern Saudi Arabia's supply might not be as constant as hoped.